A Johnson Controls logo appears on an array of lithium-ion batteries following their debut at the 2008 North American International Auto Show in Detroit, Michigan, U.S. (Photographer: Daniel Acker/Bloomberg News)

Johnson Controls Caps Revamp With $13.2 Billion Brookfield Deal

(Bloomberg) -- Johnson Controls International Plc’s $13.2 billion sale of its car-battery business completes the company’s dramatic makeover from an automotive supplier to a provider of systems for homes and buildings, setting the stage for growth through acquisitions.

Chief Executive Officer George Oliver is betting on continued growth of “smart buildings” as companies seek to boost efficiency of working spaces with new technology. With the sale of the power unit to Brookfield Asset Management Inc., Johnson Controls becomes a “pure-play” provider of fire, security, climate control, and building-management systems.

The new structure will enable Johnson Controls to lower capital spending and boost profit margins, Oliver said in a conference call with analysts Tuesday. The company expects net proceeds of $11.4 billion for the power unit, which will bolster its war chest to repay as much as $3.5 billion of debt and snap up rivals in an industry populated with smaller competitors. Share buybacks and a special dividend are also under consideration.

“We’re going to be positioned to not only return cash to our shareholders, but also make sure that we’re positioned to participate in whatever consolidation that might happen,” Oliver said.

Shares rose 4 percent to $35.55 at 12:27 p.m. in New York. Johnson Controls had dropped 10 percent this year through Nov. 12, while the Standard & Poor’s 500 Index gained 2 percent.

Company Evolution

Johnson Controls began its transformation with a 2016 merger with Tyco in which the company changed its headquarters to Cork, Ireland, from Milwaukee and the following year named Oliver, who ran Tyco, as CEO. The company spun out a car-seat maker now called Adient Plc in 2016 and sold a safety-equipment business to 3M last year.

As its final step, Johnson Controls has agreed to sell its last remaining automotive business to Brookfield’s private equity arm along with partners including the Caisse de Depot et Placement du Quebec.

Johnson Controls, which has the York brand of heating and air-conditioning equipment, had said in March that it was exploring strategic alternatives for the car-battery business. The price was “very attractive” at 7.9 times earnings before interest, taxes, depreciation and amortization, the CEO said.

“The battery business is a decent asset in the right hands, but for JCI was a big use of cash and exposed them to long-term negative trends in auto,” said Scott Davis, an analyst with Melius Research, in a note.

For Brookfield Business Partners, it’s the largest acquisition to date since the division went public in 2016. Earlier this year, the firm also agreed to pay $4.6 billion for Westinghouse Electric Co.

Centerview Partners and Barclays Plc served as financial advisers to Johnson Controls.

©2018 Bloomberg L.P.